Trade is the process of exchanging goods and services and because we cannot produce all we need, interacting through trade is compulsory for both developed and developing nations around the globe. Thus nations are specializing in what they can perform best than others. All nations are not endowed with the same resources, and because of this, they specialize in different products and services and this qualify trade to exist ( Thow and Labonté, 2018 ), because its existence is based on being different. In the globe today, different nations need different products and services that they cannot produce and because of this reason and other reasons that will be discussed in this work, trade between continents, nations and states is cheap because they depend on each other for services hence the word free trade that is cheap and affordable.
However, there are countries that limit some products from being traded on but the same products may be allowed in other countries. Thus for traders, it’s prudent for them to know trading laws and regulations of different countries before they can engage in trading with them ( Howse, 2016 ). This helps respect different nations' sovereignty, leadership and norms of operation. Free trade enhances prosperity in the United States of America and that of participating citizens from different states by allowing them to get better services and products at a lower price. Thus, this helps in enhancing innovation, invention and efficiency. In this work, more information will be given on global free trade especially their benefits and pitfalls. See the figure below on how global nations depend upon each other on their products and services.
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Benefits of Free Trade
Free trade has enabled members to access quality products at lower prices. The cheaper imports that countries experience allow them to utilize capital that they would have spent importing at higher prices on different projects geared towards achieving their objectives as a country and as individuals because the goods can be accessed at lower prices. The difference between USA currency and those of other countries is large, thus exporting goods to these countries suggests that these countries will get in debt as they trade; this is a principle that is against trading, trading involves profit-making and if a party engages in loss-making then it’s better to apply the rule that if a business constantly make losses without profit it fails because all its assets will be used ( Thow and Labonté, 2018 ).
Thus with free trading the market place matters a lot, just as seen in the figure above Europe and Asia are major trading allies of the United State thus should anything affect the two, Asia and Europe it must also have a great impact in the USA because product consumption rate will be as well affected.
The second benefit of free trade is the growth of a business. In the United States, imports are inputs that they use for the production of finished products. This leads to growth and because the members are engaged in producing imported into finished products, employment opportunities are available for people who favorably compete to offer their best in innovation and invention in production because other nations are as well competing for the same market ( Howse, 2016 ). However, the main goal is to produce quality goods that other trading partners can import cheaply and freely, these countries are growing economically and industrializing.
Another benefit of free trade is improving efficiency and innovation. Traders in different states can compare their products and make adjustments that boost their skills and enhance innovation. Traders that work in shifts have skills to offer their best and because of stiff competition from countries producing the same products and services workers offer better services that are efficient. Because of various demands from different traders in the world, traders in the USA have adapted to demand changes that are often experienced because some time demand may be lower and other times higher, thus they have studied the trading market and adapted to it. Through this, the competitiveness has ensured their products and services are best for their trading partners ( Stilwell 2017 ).
Free trade has promoted fairness and equality. This is because members from different states are able and qualified to engage in trade without reservations as long as they do not trade commodities that are prohibited in their countries and termed as illegal. This gives traders’ chance to know which countries they can trade with and which commodities are accepted in different countries and those not accepted. Thus, through knowing how to trade with different countries, this creates peace among trading countries ( Thow and Labonté, 2018 ), where they abide by the laws and regulations of different states. However, this gives traders an opportunity to know different countries’ constitutions thus in case of mistreatment of members demands fairness and justice.
Also, partners are fair with each other because they depend on each other for either services or products that their members need for survival. For example, the USA has to be fair to Europe and Asia because these are the main consumers of their goods and services. Upon unfair practices, Europe withdraws from the partnership and when this happens other traders withdraw and this results in a break in the trade because the members are withdrawing for they cannot get the best treatment and services. Without fairness it’s impossible to have trade locally and internationally; this is because our customers associate with us in relation to how we treat them (Martin Wolf video).
Pitfalls of Free Trade
Poor market analysis is a problem that negatively impacts on trade. Because of poor market analysis, more products may be supplied to the market where demand is lower than supply; this means that the price of products will be lowered to make sales. Traders make losses because they do not have information to help them make decisions. Trading demands better analysis techniques of the market where traders will know what and how the market moves. This is something that takes time to be known ( Stilwell 2017 ). Those engaged in trading without knowing how and what moves the market do not make profits, they are prone to make losses.
Another pitfall is the lack of face to face interactions of potential customers and traders. For these people to partner in trading, they need to be engaged on a face to face talk which will convince them that the trade is real and they can make maximum profit out of it. With face to face communication, the questions asked by those trading are answered and this helps build confidence in these people ( Stilwell 2017 ). Thus these parties can exchange and make their input on what other firms are doing to outdo them in business.
Poor understanding of how the market competition in foreign states is disadvantageous to traders. This is because traders might bring similar goods that they have imported from other countries selling them at a relatively higher price than importing price to market places where the producing countries are exporting theirs too ( Howse, 2016 ). However, knowing other substitute goods in the market is good because they will plan how to sell their products in their intended market. Thus they should have proper resource management skills to ensure that they do not make losses in the buying exchange.
In free trade, traders face the problem of effective distribution and poorly promotional campaigns ( Stilwell 2017 ). Traders cannot effectively tell which place needs more distribution of products because the customers may shift to use substitute goods thus upon depletion of these, they buy their products because this is the only option available for them. Trade without promotion campaigns will not attract other traders, it’s through advertisement and campaigns that traders markets their products and services, the lower the campaigns the lower trade carried out.
The period taken by traders’ negotiations of different countries is disadvantageous because this could be used by traders to carry out their businesses. Traders after learning how trade is done in different states within a long time, they may decide not to engage in the same trade with those states because either competition from the learned outcome is higher and they could not manage ( Barron’s article ). The other reason to quit is their products could be among those that have been termed as illegal. However, traders can opt not to trade because the target population has migrated to other areas thus products are not bought.
The traders face a problem with securing finance ( Howse, 2016 ) , this is where they have different currencies. For trade to be effective a common agreed currency should be used. However, this is not the case; for traders are charged slightly a higher rate as they exchange cash to other states currency and after trading exchanging rate are slightly lowered for them to have cash used in their home countries.
Conclusion
In summary, free trade has helped create peace among nations. The tension and wars that existed between states have reduced greatly because of trade. With the availability of resources at cheap prices or common agreement peace security of people has improved.
References
Barron’s article ( https://www.barrons.com/articles/donald-trumps-worstidea-trade-barriers-1481953007 )
Howse, R. (2016). The World Trade Organization 20 years on: global governance by judiciary. European Journal of International Law , 27 (1), 9-77.
Martin Wolf video Financial Times ( https://www.youtube.com/watch?v=lXEdqUmqpU4#action=share ) on Brexit fears.
Stilwell, F. (2017). Graham Dunkley: One World Mania: A Critical Guide to Free Trade, Financialisation and Over-Globalisation. Journal of Australian Political Economy , (79), 153.
Thow, A. M., Jones, A., Hawkes, C., Ali, I., & Labonté, R. (2018). Nutrition labeling is a trade policy issue: lessons from an analysis of specific trade concerns at the World Trade Organization. Health Promotion International , 33 (4), 561-571.
